Real Estate Talk:
Perils of overpricing
Asking too much may lead to getting less
By Joseph Marovitch
Updated February 7, 2019
There was a client who told me their house was special and required a special buyer. Since the house was special it was worth more than all the other homes around it. They asked if I was a broker who understood and could sell it for them.
In the past several years, as a real estate broker, I have heard this several times. Many brokers, starting out, will say they do understand how special the house is and sure they can sell it at that higher price, ignoring the comparable sales that say differently.
The broker lists the house and starts off with ads and open houses. The first wave of buyers call and visit, but they also visit other homes with comparable square footage and bathrooms and bedrooms. The potential buyers find other homes that are different but as nice and have criteria they are searching for. The other homes have higher city evaluations at times, with asking prices that are lower than the brokers’ special house.
There are no special houses. There is the market that dictates the price.
The process, after a month, consists of telling the client the price is too high, and the client thinks the broker does not believe enough to sell the house.
The seller goes through one or two more other brokers until, after losing money in carrying costs and the public thinking there is a problem with their house, the seller sells for less than they would have received at the beginning of the process.
There are no special houses. There is the market that dictates the price. There is a scale from the lowest price to the highest price the house can sell for based on comparable property and the condition of the house.
Finally, there are concepts to abide by:
- We do not want the one special buyer. We want as many buyers as we can get.
- Give the house as much exposure to the market as possible to get the best price possible. The more potential buyers that see the house, the more likely the house can get multiple offers, driving the price up.
- Price the house for the market. If you do not want to accept the price the market will bear, then do not sell the house. Better to wait than burn the property and assist in the sale of everyone else’s property.
Brokers usually will not tell clients this because, whether a house is properly priced or overpriced, the broker still benefits. A properly priced house leads to a sale for the broker. An overpriced house brings the broker new buyers and the broker can use the seller’s house to sell other homes to the potential buyer. This is done by telling the buyer what the seller’s house is asking and then showing a similar property with a lower asking price but a higher evaluation. In this case the buyer is getting more for their money.
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Have a great week!
Next article: Promise to purchase before due diligence, always!
STATE OF THE MARKET
Quebec continues to be a seller’s market as prices continue to rise but sellers are fewer and fewer. Real estate prices continue to rise but so does average household debt, so much so that the Federal bank has decided to maintain the current lending rate. Many people have decided to rent so they can accumulate cash to purchase their next home.
This trend has caused the price of residential income property, which would normally sell based on the capitalization rate or rate of return, to rise in price much higher than the cap rate would dictate. The rise in income property prices have peaked the interest of both individual and institutional investors so much so, that income property investors are snapping up property with cap rates of 4.5 or higher as fast as they can. This acquisition of income property is in turn causing income property prices to rise even higher.
Many individuals do not believe prices in Montreal will continue to rise. However, headlines across Canada indicate prices decreasing everywhere, except in Montreal. We are an island that is maxing out in space to build and as time passes, there will be no room to build. Montreal will become a re-sale market only.
Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible to, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or firstname.lastname@example.org